Although they are becoming more popular as an alternative to traditional checking accounts, reloadable prepaid cards don’t have to carry federal deposit insurance, as checking accounts do, says a new report from a project of the Pew Charitable Trusts.
The cards are becoming more widely used because holders can use them for direct deposit of their paychecks and to pay bills, just as customers can do with a checking account.
But checking accounts carry up to $250,000 in mandatory deposit insurance per customer through the Federal Deposit Insurance Corporation.
The insurance is quickly available to customers in the event of a bank failure.
Most prepaid cards say they offer “pass through” deposit insurance, by pooling funds in federally insured, third-party bank accounts. But at least one company–American Express–does not, the report found.
Story by Ann Carrns for the New York Times.